Legal & Regulatory

India Regulatory Brief: Gujarat Ahead of Maharashtra in Industrial Investment Survey, Sebi Prepares Guidelines for IPOs

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Economic Survey: Gujarat Ahead of Maharashtra in Industrial Investment Survey

The pre-budget Economic survey clearly identifies Gujarat edging ahead of traditional powerhouse Maharashtra in industrial investment.

Between August 1991 to October 2014, the survey proved that despite Maharashtra attracting a hefty number of investment proposals, execution rates remained under 50 percent. The state’s Special Economic Zone (SEZ) policy, launched in 2006, also produced disappointing results with only 24 SEZs having been executed.

Of the total number of FDI proposals in India, Gujarat’s 12.23 percent share of executed projects edged out Maharashtra’s ten percent. As well as a superior conversion rates, Gujarat also attracts higher value investments than its neighbor Maharashtra.

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India Regulatory Brief: E-Business Continues to Prosper, Parliament Passes Bill to Increase Insurance FDI Cap

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Online Wholesalers Take the Lion’s Share in India E-Business Report

According to an e-business report release by brokerage firm Jefferies India Pvt. Ltd on March 12, 45 percent of India’s online market is now controlled by wholesalers and 35 percent by pure-play online sellers.

The report refers to online portals such as Amazon, SnapDeal and Flipkart, all of which serve as a platform for different types of vendors. Approximately 60 percent of those surveyed reported 100 percent growth in online sales, with another 20 percent showing sales growth between 30 – 100 percent. 

Despite such growth, challenges still remain. The Indian government does not permit foreign direct investment (FDI) in online retail and restricts e-commerce FDI to 51 percent. Although it increased its market size in India in 2014, Amazon still incurred an overall loss in the country. There is therefore still cause for caution in India’s e-commerce market, but this latest report shows that the industry is moving in the right direction.

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India Regulatory Brief: Government Plans to Streamline Exports, New Laws for Faster Patent Approvals

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Government Targets Formation of Committee to Streamline Exports

On March 7, Commerce and Industry Minister Nirmala Sitharaman announced government plans to form a committee for the purpose of simplifying India’s export procedures. 

Speaking at the Dun & Bradstreet awards, Sitharaman said that the committee would also help boost India’s outward shipments. “We are planning to form a committee which will meet every six months to tackle the issues relating to exporters”, she said. “Apart from others, this committee will have members from the exporting community too and will ensure how problems being faced by exporters can be addressed effectively”.

The committee will form part of the government’s broader “Make in India” campaign, which aims to increase business confidence in India and transform the country into a manufacturing hub.  Sitharaman emphasized that, if Make in India is to be successful, India’s export volumes will have to increase.

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India’s FY 2015-16 Budget: Meaning and Implications for Foreign Investment

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By Chris Devonshire-EllisTarun Manik and Nishant Dixit
Dezan Shira & Associates

Although lacking the “big bang” that was speculated before its release, India’s budget for FY 2015-16 creates important opportunities for foreign investors through small but meaningful reforms. The budget was announced on 28th February, 2015, by India’s Finance Minister Arun Jaitley. It proposes a number of foreign investment and tax reforms with important consequences for investors including lower compliance costs, increased certainty in the tax regime, and an improved business environment.

The budget proposals seek to improve India’s business and investment environments by improving ease of doing business in the country. In February, the government launched an e-biz portal which integrates 14 regulatory permissions at one source. The finance minister said in the budget speech that he intends to appoint an expert committee to prepare a draft legislation which will expedite regulatory permissions.

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India Regulatory Brief: New ‘Black Money’ Standards, Changes to Corporate Income Tax

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New Indian ‘Black Money’ Standards

In his budget speech on January 28, Finance Minister Arun Jaitley announced legislation aimed squarely at curbing India’s ‘black money’ problem. If approved, penalties will be harsher in India than in many other countries.

Retaining undisclosed income abroad and evading tax on foreign assets could lead to imprisonment for up to ten years.  The penalty for concealing income or assets will be levied at 300 percent of tax and offenders will not be permitted to approach the Settlement Commission.  

Income from undisclosed foreign assets will also be taxed at the maximum margin rate of 30 percent with no exemptions or deductions. Regardless of taxable income, it will be mandatory for the owners and beneficiaries of foreign assets to file tax returns. This is aimed at preventing benami transactions abroad; a form of money laundering in India where properties are bought by a second party in order to hide the real beneficiary.   

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Setting up a Wholly Foreign-Owned Subsidiary Company in India

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By Dezan Shira & Associates

Under Indian law, foreign investors are able to establish wholly owned subsidiary companies (WOS) in the form of private limited companies if they operate in sectors that permit 100 percent foreign direct investment (FDI). With India’s recent loosening of FDI caps, companies are now also able to establish WOS in the telecom services and asset reconstruction sectors. Establishing a private limited company can be a lengthy and complicated process involving multiple steps.

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What Indo-U.S. Bilateral APAs Entail For U.S. Investors

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By Shilpa Goel 
Business Advisory Associate, Dezan Shira & Associates 

India’s decision to negotiate bilateral advance pricing agreements (APAs) with the U.S. is a welcome move. Prospectively, negotiations will increase certainty and uniformity in the application of India’s transfer pricing laws to related-party transactions carried out by U.S. multinational corporations (MNCs). In this article, we discuss some of the important caveats that MNCs must watch out for in complying with India’s nascent APAs.

Introduced in 2012, India’s APA regime provides for a framework to determine, in advance, the arm’s length pricing of an international transaction. If concluded as expected, APAs will bring about a reduced compliance cost to companies due primarily to elimination of transfer pricing selection and audit and a decreased burden of maintaining transfer pricing documentation. Businesses must, however, proceed with the APA application process with due care and diligence, especially on the following three fronts.

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India Regulatory Brief: India Ease of Doing Business Rankings, States Seek Mining Ordinance Concessions

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Government to Rank States on Ease of Doing Business

The Indian government is set to begin ranking states on the ease of doing business. The initiative will encourage state relaxation of dated legislation and establish a means for the federal government to identify poor performers.

The states will be ranked on the basis of: setting up and exiting business, registration of property, labor compliance, infrastructure availability, finance and tax issues and inspection reforms.

The move is in line with the Modi government’s competitive federalism’ agenda and will facilitative favorable reform for foreign investors.

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